Halting the Erosion of America's Critical Assets
Tolchin, Susan J., Issues in Science and Technology
First, decide what's worth saving; then, create an agency with the power to do the job.
The impending sale of LTV's missile and aircraft divisions caught the nation by surprise in the late spring of 1992. In bankruptcy since 1986, LTV found itself forced to auction off its most profitable assets to satisfy a legion of impatient creditors. Though the company was in trouble, its defense business showed healthy profits; 1991 sales totaled $1.7 billion. LTV also held many defense contracts and was heavily involved in classified weapons systems, notably the Stealth bomber and a short-range tactical ballistic missile system. The bidding war for the LTV properties was intense. But it suddenly became a cause celebre on Capitol Hill when it appeared that a huge corporation and bank controlled by the French government would snatch the prize.
For the first time in history, a major U.S. defense contractor was up for sale to a foreign corporation. Thomson-CSF bid for the missile division, and the bank Credit Lyonnais planned to finance the acquisition of the aircraft division through the Carlyle Group, a U.S. investment house. Competing against the French was a team from Martin Marietta and Lockheed. Its bid of $385 million fell well short of the $450-million French offer. The final decision rested, of all places, in U.S. Bankruptcy Court in New York City, where Judge Burton R. Lifland indicated that he had no alternative but to go with Thomson, the choice of LTV's creditors, rather than the American team, preferred by LTV's leadership and employees.
Norman Augustine, CEO of Martin Marietta, argued that no U.S. company, even one as healthy as his own, could compete with a government-sponsored entity. The French government owned 58 percent of Thomson and 67 percent of Credit Lyonnais. Thomson, in turn, owned 15 percent of Credit Lyonnais. The entire enterprise resembled a Japanese keiretsu, with cross-shareholding companies that revolved around a government-funded bank.
At this point, Congress tried to stop the deal. Senator Robert C. Byrd (D-W.Va.) introduced a bill barring the sale, while Senator David Boren (D-Okla.), chairman of the Senate Select Committee on Intelligence, asked why taxpayers should continue to finance billions of dollars of aerospace research if the Bush administration refused to curb business deals that would give away the rewards to overseas competitors. A classified study by the Defense Intelligence Agency revealed that the sale posed a serious risk to the nation's sensitive military technology.
Both sides hired armies of lobbyists, many of them former Defense officials. France's American partner, the Carlyle Group, was represented by none other than former Defense Secretary Frank Carlucci. Faced with mounting pressure, the White House stepped in.
Confronted with a major political obstacle, Thomson and Credit Lyonnais backed down, and the process began anew. Loral, Raytheon, and Northrop entered the fray, and Martin Marietta returned. Carlyle stayed in on its own. In the end, LTV's missile division went to Loral for $261 million; the aircraft division went jointly to Northrop and Carlyle for $241 million.
The LTV crisis served as a case study of the U.S. government's deficiencies in protecting its critical technologies and critical companies. In contrast, France has a policy that limits foreign ownership of its important assets, as well as a plan to retain and expand critical technologies and industries. So does Japan, Germany, Britain, Canada, and every other industrialized nation. For example, after the Kuwaiti Petroleum Co. increased its holding in British Petroleum from 9 to 22 percent--which would have given it a controlling interest--the British government used an antitrust ruling to force it to divest, driving the company's stake back below 10 percent. The Canadians vetoed the acquisition of aircraft maker de Havilland by a consortium of French and Italian investors on the grounds that it did not serve the national interest. …